talking to appraisers

Being an appraiser is sort of like being Magnum PI. Well, I guess it’s just the same except for the tropical island, mustache, red Ferrari, and short shorts. I’m kidding. On a serious note though, appraisers are vaguely similar in one regard in that they investigate details. This brings us to our topic today. Why are appraisers always asking real estate agents about concessions in the purchase price? And how do appraisers use this information?

What is a concession? “A sales concession is cost or consideration given by a seller to motivate the buyer to complete the purchase” (homewyse.com). In other words, the seller is offering something to the buyer to help get the deal done.

Why do appraisers ask about concessions? There are two reasons why appraisers need to know about concessions. First, there is a place on the appraisal form for appraisers to list any concessions for the comps, so it’s a matter of filling out the form correctly. Secondly and more importantly, appraisers need to understand what impact any concessions might have had on the purchase price of the comps. Would the comps have sold at the same level if there were no concessions? That is essentially what the appraiser is asking so the appraiser can figure out how to make value adjustments to the comps.

Common concessions: Some of the most common concessions include the seller offering help with closing costs, paying for HOA fees, including personal property in the sale, or giving credits for repairs. We see this in new construction all the time where a builder will offer $10,000 to help pay for the buyer’s closing costs. While this might be the only listed concession, if a builder has also offered $15,000 in “free” design options (upgrades), that’s also considered a concession. On the financing end there are concessions too such as interest rate buydowns or other below-market rate financing.

Do appraisers adjust comps when the subject property has concessions? No. Adjustments are NOT made to comps if the subject property has concessions padded into the contract (or outside of the contract). Adjustments are only given to comps if there should be an adjustment given (see below).

When are adjustments given to comps? Appraisers will adjust for concessions to a comparable sale when concessions ended up impacting the final sales price of the comp. Would the comp have have sold at that level without the concessions? If an appraiser researches neighborhood sales and notices the sales with credits to buyers are selling at higher levels, then clearly credits are boosting those prices. In this case an adjustment would be made to the comparable sale for whatever amount the concession boosted the sales price to be sure the subject property’s appraised value reflects the market instead of padded prices from the comps with concessions. Keep in mind an appraiser doesn’t have to adjust the full amount of the concessions. It all comes down to how much of an impact, if any, the concessions had on the purchase price. Sometimes an appraiser might not make any adjustment at all.

Tips for Real Estate Agents:

Be Specific in MLS: Disclose any concessions in MLS. Be specific and write a sentence if need be instead of writing “CLA” (Call Listing Agent). You will get less phone calls from appraisers too if you include more specific information.

Be Cautious of Padding: Be realistic about padding concessions above market value. If a property listed at the top of the market, and now you are writing or accepting an offer that pads the list price with an extra 3% above that price, realize this may push you into “no man’s land” where the property cannot appraise that high. Sellers always want to net more, but when a market slows down, it’s not always possible to get those higher prices.

The Truth: If asked about concessions, please tell the truth so appraisers can consider if there is any adjustment needed to the comps. If appraisers use bad information on the comps, it can lead to the wrong value for the subject property. If there are confidentiality issues about sharing these insider details, just let the appraiser know that.

Know How it Works: Remember that appraisers do not make adjustments if there are concessions in your listing they are appraising. They are only making adjustments to the comps if needed. Your seller can offer substantial credits back to the buyer for your listing, and no adjustment will be given because of that. However, the key is that there are comps out there that support your contract price (comps without boosted prices from concessions too). If your contract price reflects market value, that’s good news for your seller.

I hope this was helpful.

Questions: What type of concessions do you see most commonly in purchase contracts? How have you seen concessions impact the price on a property?

I recently appraised a custom home, and when the order came through the property looked overpriced. I thought, “Yep, I’m going to look like the bad guy when this one appraises too ‘low'”. However, after doing all my research AND asking all the right questions to the listing agent, this property was clearly worth slightly more than the contract price. Ultimately I left the transaction feeling a bit curious why the agent did not offer more information about the property until I asked. At the end of the day her insight was actually vital since I found out there was a back-up cash offer above asking, one other full-priced conventional offer, and another listing coming on the market priced at a similar level – not to mention the feedback on the layout, landscaping, and location. The agent spent so much time, effort, and money to market this listing, but when it came to communicating with the appraiser, her approach was hands-off.

A “cheat sheet” to communicate with appraisers: What if you had a document on your desktop to simply address some of the questions appraisers tend to ask? You could quickly fill it out, and then email it or give it to the appraiser in person. Check out the document below, and you can download in WORD or a PDF.

This document addresses how the market responded to the subject property, and it also gives an opportunity for the listing agent to share any insight about the neighborhood, school district boundaries, market trends, important reasons buyers might be looking in the neighborhood (that the appraiser may or may not know), or insider knowledge about the subject property or street. Remember, this is potential market data, so it can be important for the appraised value. Also, you can look like even more of a rock star to your client when your client sees how intentional you are with the appraiser.

Some quick tips:

Save this document to your desktop and use it for each listing.

Tell the truth in everything you write.

Feel free to skip, delete, or add any categories.

Take 10 to 15 minutes to answer questions.

You don’t need to write a novel, but it’s okay if the document ends up being more than one page (try to keep it less than two though).

Remember, this information is about sharing facts instead of pressure to “hit the number”. This is exactly why it’s okay to share this type of information.

Try to avoid subtle pressure statements like, “Please get value as high as possible”, or “We really need this one to work out”, because that comes across as trying to steer the value.

Be specific about upgrades. For instance, instead of saying, “The house was remodeled throughout,” unpack what that means and when any remodeling was done (if you know).

If you don’t feel comfortable providing sales or listings to the appraiser, that’s okay. However, if you do provide sales, make sure they are actually competitive to the subject property. If you know the sales well, you can always write out any differences at the top of the MLS sheets. I recommend saying “here is data I used to price the property” instead of “here are your comps”. If the appraiser doesn’t want to take any sales from you, maybe the appraiser would still take this information sheet.

Is there anything you’d tweak about this document? Speak up or offer constructive feedback below. If there is enough response, I can post a second round of an improved document in a few weeks. I’m all for better communication, and I would LOVE to get more information like this on a regular basis.

Questions: Do you think this document would be useful? Anything you’d add or take away?

Let’s be real. There is often tension between real estate agents and appraisers. And there is definitely room to help improve communication between both parties. That’s why this post is relevant from an appraiser’s perspective. Part of me hopes in response someone will write “5 things real estate agents want from appraisers”. I hope this will highlight a few basic and practical ideas for how to better work together. Read over the short list, apply what seems reasonable and let me know what you think in the comments.

5 things appraisers want from real estate agents:

Photos: Insert 20-25 photos in MLS so appraisers can get a better sense of your listing. Having pictures of the main rooms, a few of the kitchen and bathrooms, some of the rear landscaping and any to highlight remodeling or upgrades can help us visualize the home. Or if you mention there is an addition, please include a photo of the addition. Ultimately, words in MLS like “remodeled” or “upgraded” can mean something different to everyone, so images can help tell a better story. When you take photos for a listing, just think about how snapping a few extra shots on the front end will save you time on the back end from answering questions from appraisers on the phone.

Concessions: It’s very helpful when you let us know in MLS if there were any concessions paid or given to the buyer by the seller. Appraisers have to list any concessions in the appraisal report, and beyond that consider if any concessions or credits had any impact on the price. In many cases instead of listing out the dollar amount of concessions our local MLS says “CLA” which means “Call Listing Agent”. If your client does not want this information listed for confidentiality purposes, that is understandable, but if that’s not the case, including the amount is one less thing we are going to be asking you about. This will save you time on the phone with appraisers.

Return phone calls quickly: Appraisers are often working on a tight deadline to finish a report. This means the appraiser is probably hoping to get the report out by the next day or even in a few hours. When you call back right away, it can be amazingly helpful. Of course the appraiser needs to plan adequately too and not expect you to respond in lightning speed (One of my favorite sayings is: Your lack of planning does not constitute my emergency). On a related note, remember if the appraisal is delayed, it can delay closing in light of QM guidelines that state a Borrower needs to see the appraisal at least three days prior to escrow closing.

Tell the truth: This probably goes without saying, but please tell the truth. If appraisers get incorrect details from you and end up using what you told them to help shape an opinion of value, that’s not good. If you didn’t know, what you say and think can really matter because you provide an insider look at the market. This means if there were not multiple offers, please don’t say there were. Or if the property had some issues not listed in MLS, let the appraiser know what was wrong when asked. Sometimes I’ll call a Listing Agent for a recently closed sale and I’m told very confidently it was a fixer, but then the Buyer’s Agent will tell me it was a total remodel (this is where including photos in MLS can make a difference). At the same time, it’s understandable to forget an older listing. The same thing happens with appraisals because they all blend into one after a while.

Manage Irritation: It can feel like an inconvenience to talk to appraisers – especially when you’re really busy. But if you’re giving off an irritated or “I’m too busy for you” vibe when appraisers call, it’s time to find a way to be present and pleasant for the conversation. Talking to appraisers is simply a part of business. Appraisers should be respectful of your time too, but remember that appraisers are not calling to bother you, but rather do their job. Keep in mind they are also trying to get information from other agents for the comps they’ll use to appraise your listings. If they cannot glean insight from agents for those properties, it could potentially harm your deal. By the way, check out 7 things real estate agents should know about appraisers to glean some context to help understand appraisers.

Upgrades: I’m adding an honorary item #6 in light of my friend Joe’s comment below. Appraisers really do want to know about upgrades directly from the Listing Agent or owner. I’ve written about this before, so I did not include this point above, but it is definitely a top-notch item. How has the property been upgraded in recent years (think inside and outside)? Make a list and give it to the appraiser. If it’s relevant, read more about information to provide the appraiser during the inspection.

NOTE FOR APPRAISERS: The appraisal industry is not known for its exemplary people skills. I hear continuous feedback from the real estate community about appraisers who are impersonal and come across as very anal. It’s okay to be introverted or focused on work, but at the same time the appraisal industry needs to freshen up a bit on communication skills, stop incessant complaining and be proactive about building a better reputation. It’s still possible to remain neutral and unbiased while being nice. I have nothing but love for my colleagues, but appraisers can do better (which can be good for business also).

Questions: What do you think of the advice? If you are a real estate agent, what advice do you have for appraisers? Feel free to comment below.

A reader reached out to me recently to share a story about his real estate agent telling him NOT to tell the appraiser about a particular issue with his house. This made him feel uncomfortable, so he asked my advice about what to do.

Should you keep secrets from the appraiser? I’m not saying you are obligated to go out of your way to disclose faults about your house to the appraiser, though if you are deliberately holding back important information that might impact value (or being told to do so), that’s not a good situation. The appraiser of course is responsible to research issues and uncover information, but if there is something that is being intentionally hidden from the appraiser, it starts to smell a bit like….. fraud. I’m not talking about disclosing that the kitchen faucet is broken or even that the bathroom sink is leaking, but rather hiding larger ticket items or issues that might really sway buyers to pay far less for a house.

My advice? Don’t try to hide anything from the appraiser. While you may not have to legally disclose certain issues, if you are asked a pointed question by an appraiser, be honest. If this is a purchase transaction, disclose according to your state laws so the appraiser can at least consider the information and whether it impacts value or not. If you are a real estate agent or loan officer, you might want to be cautious about saying, “Don’t tell the appraiser” since that extra information might actually make a difference for the appraised value.

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